Turning 73 Soon? 1 Smart Move to Make Before Your First RMD Hits.

If you’re approaching age 73, there’s an important financial milestone coming up. It’s not necessarily a good one, though.

For savers with money in a traditional retirement account, age 73 is when required minimum distributions, or RMDs, begin (though for younger workers, they don’t start until 75). Failing to take RMDs when you’re supposed to can result in big penalties, so they’re not something you can afford to ignore.

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The problem with RMDs is multifold. First, they can drive up your taxes and mess up your finances in the process.

RMDs could also increase your taxable income enough that you’re required to pay taxes on your Social Security benefits. And if they drive your income up substantially, you could be assessed surcharges on your Medicare premiums known as IRMAAs, or income-related monthly adjustment amounts.

That’s why it’s so important to do what you can to minimize the blow of RMDs. And one key move could be your ticket to easing the pain.

It’s time to think about Roth conversions

If you’re getting close to having to take RMDs, then it’s time to think about converting some of your savings to a Roth IRA. But it’s also important to plan carefully for Roth conversions, since they have tax consequences just like RMDs do.

When you do a Roth conversion, the money you move over is treated as taxable income the year you make that transfer. So you’ll need to time those conversions carefully.

If you’re close to 73, it means you’re probably enrolled in Medicare already. And if you do a very large conversion in a single year, you may be more likely to drive yourself into IRMAA territory two years later (IRMAAs are based on income from two years prior).

Plus, a large Roth conversion could result in a very large tax bill. A big benefit of doing Roth conversions is to reduce the tax hit of RMDs. You don’t want to negate that benefit with a massive tax bill before they even begin.

Consider your choices carefully

A Roth conversion isn’t automatically the right move for everyone facing RMDs. Whether it make sense for you depends on your income, tax bracket, and other factors.

But if you’re worried about having to take RMDs, the sooner you start planning for a Roth conversion, the more options you might have. Even if you’re only able to move a small portion of your retirement savings into a Roth IRA, you might still buy yourself more flexibility once your 73rd birthday arrives and RMDs become mandatory.